Three Questions to Predict if Your Customer Will Renew
Building a strong customer base is a game of inches, as the football analogy goes. To sell the deal, you have to find the right market, build the right product, and create a strong buying experience. But, as we all know, that’s only the first touchdown. You continue to sell and resell your product every day the customer uses it (or worse: doesn’t use it). You’re reaching for the next touchdown — a renewal, new engagement, or up-sell — with every customer interaction.
It’s the norm now for companies to track and measure the experience of their customers after the sale, and spending for customer retention programs is on the rise. A 2014 Harvard Business Review survey found 53% of executives saw customer experience management as a potential competitive advantage and 45% made it a strategic priority. And yet, how customer experience measurement is done widely varies.
What’s the Purpose of Customer Experience Management?
More importantly, what executives think customer experience management can and should do for their organization is largely still up for debate. Should it drive loyalty and/or improve NPS scores? Increase customer referrals? Decrease costs? Help you gain market share? All of the above?
Let me wade into the debate. The core focus of every B2B customer experience program should be learning how to retain and grow customer revenue.
If your customer experience program is not telling you how likely your current customers are to renew or expand their spending with you in the near and long term, you’re missing a critical metric of success. Typically as much as 80% of a company’s revenue comes from its existing customer base. That means even a modest churn rate can cause a dent in your revenue.
So, how can you predict your customer retention? There are two main methods:
- Ask your customers if they will renew.
- Understand your customer’s experience.
Asking Your Customers if They Will Renew is Good
When you ask a customer outright if they plan on renewing with you, the answer is called stated data, meaning that’s the answer the customer said. There is definite value in stated data. For example, what if your largest customer said, “I’m not sure if we’ll renew. Our purchasing department recently told us we have to do a competitive bid for all large contracts, so we’ll need to do one for your product as well.” Clearly that is great information to have — you can start preparing now for a competitive renewal bid.
However, customers can’t always articulate what is most important to them. Or, in some cases, they may give an answer they think they should (eg: I’ll say price is most important to me just so you will give me discounts.) And in the case of renewals, they may hold off giving you a realistic answer because there is an existing relationship, they want to avoid sales pressure, or they just don’t know yet. So, while it’s extremely valuable to have candid conversations with customers about what’s important, I find it less helpful to collect stated data in this case. Instead, I would recommend derived data.
Understanding Your Customer’s Experience is Best
You can derive the answer to your renewal question by understanding your customer’s current experience with your solution by looking back in the rear view mirror to see what’s happened so far in their journey. Let’s start with the three core questions you need to ask the customer.
Question 1: What are the most important benefits you want my solution to deliver?
Customers purchase products to receive benefits. No one buys a phone system to have a phone system, but rather to be able to communicate effectively with others. This question will help you understand the outcome or result that drove the customer to purchase your solution in the first place. If possible, ask the customer to be specific about the benefit. For example, if they say they want “reduced cost”, ask if there was a certain percent decrease they were hoping to accomplish.
I like to provide customers a list of potential benefits to select from to make the analysis easier, but you need to be careful about leading — make sure you include plenty of “other” options so they can write in benefits you might not have thought of. You can also definitely ask this question as an open-ended statement, providing no options to pick from.
Question 2: How well is my solution delivering those benefits?
This question can be asked as a scaled question (eg: rate from 0 to 10) or on a text-based Likert scale (somewhat, not at all, etc.).
It’s important to ask about the specific benefits mentioned in question one. If the customer wanted reduced costs, increased efficiency, and better employee engagement, make sure you ask about how well the solution has delivered all three of those benefits specifically. If the list gets long, ask the customer to narrow down to the top three benefits they care most about.
Do not miss the opportunity to follow-up for more details on any high or low rated items. Ask neutral probing questions like, “Please tell me why you rated X that way.”
Most importantly: Do not use this as a sales opportunity! Don’t explain that the customer simply missed a feature of your solution! There will be time for clarification and follow-up LATER. If you do it now, you’ll risk cutting off the candid feedback and interrupting the flow of discussion.
Question 3: How much effort was required to experience those benefits?
While this question might seem quirky at first, it’s the most important. A Corporate Executive Board (CEB) study found 94% of customers who have a low effort experience will purchase again. So, it’s critical to ask about the effort required.
I like to ask this as a scaled question (eg: rate from 0 to 10) because you can get more specific in your measurement, but make sure to follow-up with the customer to get more details. Try something like, “What specific processes or features did you consider when determining that effort score?” or “Please explain what type of effort you were expecting the solution to require.” or even “Tell me about a recent experience you had with the solution that felt more difficult than expected.”
One quick note about this question: the effort will be relative for each customer. While one customer might think it’s “easy” to pull a report from your software, another customer might gauge the same actions as “difficult”. That’s okay. What you are measuring here is the customer’s perception of effort. Customers who feel like the solution is difficult are more likely to seek easier solutions, putting you at risk for renewal.
Evaluating The Experience to Determine Retention
Now that you have the answers to these three questions, you can use the answers to derive likelihood of renewal. A very simple calculation might be:
((Number of benefits experienced strongly) / (Expected benefits)) / (Effort required)
|Expected Benefits||Experienced?||Effort Required|
|Reduced costs – 5% decrease in expenses||10 – strongly experienced||5 – neutral|
|Increased efficiency – 5% decrease in employee count||1 – not at all||10 – very difficult|
|Better employee engagement – no specific measurement||6 – somewhat experienced||7 – somewhat difficult|
You might calculate that as: ((Number of benefits experience strongly = 1) / (Expected benefits = 3)) / (Avg effort required = 7.3) = 4.5% likelihood to renew
I’ll reiterate this is a very simple version of the calculation you actually need to do, but even before you calculate, you should have a sense that this account might be in jeopardy because the customer is not experiencing all the benefits they want and the effort required is very high. You need to develop an action plan to help them experience the benefits and/or ease the burden of effort.
It’s All About Outcomes
I’ll leave you with these words of wisdom from our CEO, Ken Allred:
“In reality, the biggest influence on your customer’s experience is your ability to deliver the outcomes they wanted when they decided to buy from you. You can provide the best support in the world, have wonderful relationships, and be beloved by your customers, but if you can’t deliver what you promised, your customer will leave you as soon as they find someone who can.”
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